Latin America and the Caribbean: Challenges and Opportunities in a Time of Crisis

1. Latin America and the Caribbean: Challenges and Opportunities in a Time of Crisis Alicia Bárcena Executive Secretary of ECLAC Woodrow Wilson International Center for Scholars Washington D.C., 11 September 2009

2. Dilemmas and uncertaintiesafter the crisis • Old and new forms of protectionism • A new international financial architecture or just cosmetic changes? • Will there be more regulation? What willbe the combination of public policies? • Bilateralism (chinamerica) as opposed to multilateralism (open regionalism) • Uncertainty concerning climate change • Unemployment, informality and poverty • Fragile democracies

3. MANAGING FIVE TRANSITIONS • From market supremacy to a new role for the State • From traditional to new geopolitical and economic alliances • From social exclusion to an inclusive development • From exclusive R&D to extensive innovation for all • From oil-based to a carbon-free sustainable economy

4. SHORT HISTORY OF THE CRISIS • The known links: subprime crisis-investment banks-financial systems-crisis in confidence • The reconfirmed link: transfer to the real economy. No decoupling • The proven effects: lower economic activity, negative growth, drop in international trade and FDI, reduction in remittances.

5. FRUSTRATION IN THE REGION AFTER BOOM YEARS (2003-2008) • Solid fiscal policies and improved levels of public debt profile • Increased exchange rate flexibility and unprecedented international reserves (+150% between 2003 and 2008) • Surplus in the regional current account coupled with economic growth • Ready access to external financing • Increased trade (I + X) (value: 138%; volume: 49%) • Terms of trade improved by 25% in the region • Per capita GDP grew by more than 3% per year for five consecutive years • Unemployment diminished from 11% to 7.5% coupled with the creation of more quality jobs • Poverty rates fell by 10 percentage points (from 44% to 34%)

6. Estimates for a prompt recovery are negative for 2009 in the 4 main channels Commodity prices Foreign direct investment Remittances and tourism External demand Source:Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official data.

7. Exports of LAC fell by 31% and imports fell by 29% in value in the first half of 2009 LATIN AMERICA AND THE CARIBBEAN: MERCHANDISE EXPORT AND IMPORT GROWTH IN THE FIRST HALF OF 2008 AND 2009 (Growth rates relative to the year-earlier period) EXPORTS IMPORTS In volume exports fell by 15.3% In volume imports fell by 25.3% All export destinations were affected but those to China have dropped the least Source:Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official data.

8. 13% 51% Inflows of FDI are expected to fall, after peaking historically in 2008 LATIN AMERICA AND THE CARIBBEAN: FOREIGN DIRECT INVESTMENT (Millions of dollars) Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

9. Remittances have fallen significantly LATIN AMERICA AND THE CARIBBEAN: MIGRANTS’ QUARTERLY REMITTANCES (Annual growth rates with respect to the same period of the previous year) Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

10. LONG HISTORY OF THE CRISIS • Development model based on deregulation • Model based on the segmentation and increased predominance of the financial sector over the productive • Production patterns that are jeopardizing the future habitability of the planet • Globalization patterns with high concentrations of wealth • Paradigms such as the “invisible hand” and “trickle down theory” are no longer credible

11. Simultaneous economic contraction in so many countries since the Great Depression (nearly 80% of the world’s economies and GDP) NUMBER OF COUNTRIES IN RECESSION IN THE SAME YEAR a (Percentages of total number of countries) Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of data from Maddison and IMF estimates for the most recent periods (2009). a Covers 29 economies. Growth rates are expressed in constant internationally comparable currency.

12. Will the future be different:New Normality with lower potential GDP in developed countries Pre-crisis Post-crisis PIB potencial Tasa de crecimiento 1.5% Tasa de crecimiento 2.4% Años Fuente: Sobre la base de la OCDE (2009) y el FMI (2009).

13. mundo pre-crisis mundo post-crisis …much less aggregate demand from US Fuente: EIU (2009)

14. Mundo pre-crisis Crisis …less trade (%) Fuente: OCDE (2009)

15. Past experience shows…. Comparison between GDP-percapita with poverty rates (Dlls and percentages)

16. MAJOR GAPS • INEQUALITY AND POVERTY RATES • INCOME DISTRIBUTION AND SOCIAL PROTECTION • EDUCATION • PRODUCTIVITY • INVESTMENT

17. THE MOST UNEQUAL REGION OF THE WORLD Gini Coefficient in comparison with other regions

18. 60 12 48,3 50 10 43,8 44,0 40,5 43,5 40 8 36,3 34,1 30 33,2 6 22.5 19.4 18.6 19.0 18.5 20 4 13.3 12.6 12.9 10 2 0 0 1980 1990 1997 1999 2002 2006 2007 2008 2009 Very poor Poor Unemployment rate (right hand side) Frustration in terms of labor market and poverty rates: Regional unemployment rate could exceed 9% in 2009 LATIN AMERICA AND THE CARIBBEAN: POVERTY, EXTREME POVERTY AND UNEMPLOYMENT RATES a (Percentages) Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of special tabulations of household surveys conducted in the respective countries. a Figures for poverty and extreme poverty rates are based on estimates for 19 countries of the region, including Haiti. The figures appearing above the bars are percentages of the population. Figures for 2008 and 2009 are forecasts.

19. Vicious circle in the life cycle • Education, • Deficits in education translate in unemployment, informality and low proctivity • Salary gaps, lack of social protection in increasing ageing population

20. EXPORT-LED MODEL NEED TO CHANGE Comparison between productivity and exports Fuente: División de Desarrollo Productivo y Empresarial, CEPAL

21. PRODUCTIVITY GAP ADDS TO THE ENERGY CONSUMPTION GAP Índices de brecha energética y productividad relativa, 1996-2006 Fuente: División de Desarrollo Productivo y Empresarial, CEPAL

22. ENERGY INTENSITY (BEP/1OOO US$ a precios de 2000) Indice 1980=100 Fuente: Elaboración propia con base en SIEE de OLADE, y base de datos de la AIE

23. Technological frontier: patents in 2006

24. INVESTMENT GAP Inversión como % del PIB en dólares del 2000

25. But the crisis also put in evidence important gaps • Weakness of domestic productive structures: • Strong presence of industries extracting natural resources without value added • Little or no innovation • Wider productivity gap in the face of the emergence of new technological demands • The international competitiveness of the countries of the region remains limited to either “maquila” or sectors intensive in natural resources

26. EXCLUSION IN EDUCATION 18 COUNTRIES: EDUCATION LEVELS BY (1990-2005) Fuente: CEPAL (2007). Panorama Social de América Latina 2007. /a. El porcentaje de conclusión de la primaria se estimó sobre la población de 15 a 19 años, en la secundaria se consideró como universo la población de 20 a 24 años y en la terciaria a la población de 25 a 29 años. 26

27. The capacity to respond to the crisis is different among countries LATIN AMERICA AND THE CARIBBEAN: SCOPE OF THE MEASURES ADOPTED TO 31-05-09 IN ORDER TO DEAL WITH THE CRISIS (Number of countries that have adopted the measure) Source: Economic Commission for Latin America and the Caribbean (ECLAC) on the basis of official information.

28. But the space to finance counter-cyclical policies is shrinking LATIN AMERICA AND THE CARIBBEAN: CURRENT ACOUNT AND FISCAL BALANCE, 2000-2009 a (Percentage of GDP) Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures. a The 2009 figures are forecasts.

29. A new role for the State • Define a long term vision: a pre-analytical framework • A new fiscal policy with a new social covenant • Chose the right mix of public policies • Search a more proactive relation with the market • Protect the most vulnerable sectors • Ensure inclusive development through spreading of technology and innovation • Fostering a green economy

30. The crisis highlights the need for a new fiscal covenant • Main objective: to foster equality • From assistance-based to universality based on rights • Tax reform based on efficiency and progressiveness

31. Tax revenues are low and constrains public expenditure LATIN AMERICA AND THE CARIBBEAN: FISCAL REVENUE AND SOCIAL SPENDING (Percentage of GDP) Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official figures.

32. Tax policies are regressive in the majority of Latin American countries LATIN AMERICA AND THE CARIBBEAN: GINI COEFFICIENT BEFORE AND AFTER TAXES (Coefficients) Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Gómez Sabaini, “Repensar lo social en tiempos de crisis”, May 2009.

33. POLITICS IS BACK • Provision of public goods • Universal social protection • Innovation and knowledge • Productive convergence • Energy efficiency and security • Cut back carbon emissions • Regional and subregional integration beyond trade